Brooke Sutherland is a Bloomberg Gadfly columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.

Honeywell International Inc.'s growth was impressive, but we're Gadfly so we can't just let it go at that.

Let's be clear that new CEO Darius Adamczyk has plenty to be proud of: second-quarter organic sales expansion of 3 percent was the strongest in two years and surpassed analysts' estimates, allowing the company to boost its full-year target. A lack of growth is one reason activist investor Dan Loeb is pushing Honeywell to spin off its aerospace business, something I don't think makes a whole lot of sense. Perhaps this gives Adamczyk more cover to tell him so.

Three Cheers
Honeywell rose on a solid second-quarter showing, as opposed to GE which tumbled as much as 5.4 percent
Source: Bloomberg
Intraday times are displayed in ET.

An increased 2017 EPS outlook -- modest and expected as it was -- stood in stark contrast to rival General Electric Co., which indicated it would come in at the low end of its projected earnings range and offered little to calm investors' fears that a major reset of expectations is looming. Honeywell's earnings report cleanly laid out the puts and takes for its EPS adjustments, refreshing for industrial companies these days. That said, margins weren't quite up to the Honeywell standard of excellence.

Segment operating margins grew by 50 basis points from the year-earlier period to 19 percent. The gain was within the range that Honeywell had predicted, but just barely, and came up somewhat short relative to the 19.3 percent average of three analyst estimates compiled by Bloomberg.

Just Short
The slight miss in Honeywell's margin relative to analysts' projections gives investors something to quibble about
Source: Bloomberg
Note: Estimate is the average of three analysts.

There's no need to sound the alarm, but this is a worry point. Adamczyk is decidedly more growth-hungry than his predecessor Dave Cote and there is some concern among investors that the company's track record of consistent EPS and margin improvements may fall by the wayside along the way. Recall that even as he assured investors of his commitment to profitability gains at Honeywell's investor day this March, Adamczyk laid out long-term annual margin improvement goals that were below what was implied by a five-year plan rolled out in 2014 under Cote.  

One culprit for the shortfall this quarter was the home-and-buildings technologies division, which had a margin of 15.4 percent relative to analysts' estimates of 16.5 percent. At least part of the blame for that was laid on new product investments. Honeywell's safety-and-productivity solutions business, which includes the $1.5 billion purchase of warehouse automation company Intelligrated, saw a 70 basis point drop in its operating margin, in part due to acquisition amortization.

None of this is a huge problem right now, and Adamczyk is right to attack Honeywell's growth issue with investment and deals. But this is still Honeywell, and no one is going to forget about margins.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Brooke Sutherland in New York at

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